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Emerging Market Options See More Action

Today’s tickers: EEM, EWZ, EWJ, EXPE, BA, RMBS, ZMH, AXP & YHOO

EEM– The emerging markets ETF dominated the upper slots of our ‘most active by options volume’ market scanner today with heavy trading activity across multiple contracts. Shares of the EEM have slipped slightly by less than 1% to arrive at $30.51. Skipping ahead through the more populated expiries, we noticed an interesting slightly bullish trade in the January 2010 contract. The investor responsible appears to have initiated the purchase of 10,000 puts at the January 29 strike price for an average premium of 3.44 apiece. The way the trade was marked suggests that this trader likely purchased an equivalent number of underlying shares of the fund. Thus, he is using put options to protect the long stock position from adverse movements in the ETF through expiration at the start of 2010. He would optimally like the puts to expire out-of-the-money by expiration and the value of the fund to increase. However, if the value of the ETF should decline over time, he has positioned himself to profit beneath the breakeven point located at $25.56. – iShares MSCI Emerging Markets Index

EWZ– Shares of the ETF have rallied higher by about 2% to $50.85, recovering a portion of the losses experienced by many Brazilian stocks yesterday. Investors who fear further bearish movement in the fund during the remainder of 2009 were seen making protective plays in the September and December contracts today. One trader established a ratio put spread by purchasing 10,000 puts at the September 45 strike price for an average premium of 3.10 each against the purchase of 20,000 puts at the September 35 strike for 85 cents per contract. The net cost of the ratio spread amounts to 1.40 and yields maximum potential profits to the downside of 8.60 if shares were to sink down to $35.00 by expiration. Another individual seeking protection against potential share price erosion was willing to pay a premium of 4.60 apiece for 5,000 put options at the December 45 strike price. Profits would amass for this trader given a 21% decline in the price of the underlying shares through the breakeven point at $40.40 by expiration at the end of the year. – iShares MSCI Brazil Index

EWJ– Shares of the Japan fund are slightly higher by less than 1% to $9.31 today, but one investor has prepared himself for near-term bearish movement. EWJ appeared at the top of our ‘hot by options volume’ market scanner after the trader purchased 25,000 puts at the July 9.0 strike price for a premium of 18 cents per contract. The investor is likely long shares of the underlying and has bought the put options to protect his position from potential downward movement in the price of EWJ through expiration. Protection would kick in if shares dropped approximately 5% from the current price to the breakeven point located at $8.82. – iShares MSCI Japan Index Fund

EXPE– The online travel company has experienced a more than 1% decline in the value of its shares to arrive at $15.27 for the day. Option bears were prodded into action by a widely read newsletter and took heed of the recommendation to buy the July 15 strike price where nearly 12,000 puts changed hands for 93 cents apiece. It appears that these put-buying investors are bracing for continued downward movement in the stock over the next month. Profits begin to amass for the traders if shares sink 8% from the current price to the breakeven point on the transaction at $14.07. – Expedia, Inc.

BA– Investors in the world’s second-largest commercial-plane maker are probably feeling less than overjoyed today amid a more than 8% decline in shares to $42.90. The company’s stock dropped after it announced further delays for its new Dreamliner 787 model. Reports from the Paris Air Show one week ago had Boeing’s new model flying before the end of June. However, representatives at the Chicago-based firm announced today that the airliner, which is already two years behind schedule, has been delayed beyond the June 30 target date. Option traders were observed buying put options on BA in the expectation of continued bearish movement in the stock. The July 43 strike price had approximately 3,000 puts picked up for 1.65 apiece while the more bearish July 42 strike had 1,700 puts purchased for 1.29 per contract. The nearer to-the-money July 43 puts will protect investors to the downside beginning at the breakeven point of $41.35. Option implied volatility has increased from yesterday’s reading of 42% to the current value of 46%. – Boeing Co.

RMBS – Shares of the computer memory chips designer have plummeted more than 14% today to $15.33 after the firm cut its second-quarter revenue forecast. The Los Altos, California-based company announced that sales will likely range between $26.7 million and $27.2 million. The revised estimate is down from original sales guidance of $30 million for the quarter and is likely due to declining demand for consumer electronics. Option traders looked for downside protection and appear to be anticipating further erosion in the share price. The near-term July contract had approximately 1,000 puts scooped up at the July 13 strike price for 25 cents apiece. Downside protection for investors long of these put options will kick in beneath a share price of $12.75. Additional put buying occurred at the higher July 14 strike price where nearly 2,000 lots were purchased for 54 cents per contract. – Rambus Inc.

ZMH– The designer and manufacturer of orthopedic reconstructive implants and other healthcare related products has experienced a slight rally in shares of less than 1% to $42.24. ZMH appeared on our ‘hot by options volume’ market scanner this morning after bullish options activity was observed across several contracts on the stock. Some traders were seen shedding about 2,000 put options at the July 40 strike price for an average premium of 65 cents apiece, while other investors chose to get long of call options. The closest to-the-money July 45 strike had approximately 2,000 calls picked up by optimistic individuals for 62 cents each. Traders exhibiting even more bullish buying behavior looked to the higher July 50 strike where 1,275 calls were coveted for 14 cents a-pop. Finally, the August 50 strike price also attracted call-buying some 1,000 times at an average premium of 54 cents per contract. Individuals who are now long calls at the July 45 strike will amass profits if shares of ZMH can rally 8% higher to breach the breakeven point at $45.54 by expiration next month. – Zimmer Holdings Inc.

AXP – Options activity has been notably bearish at Amex today with bears buying nearby July puts at the 21 and 25 strikes. Amex shares have rebounded from an earlier loss to stand at $23.30. The chunkier volume came at the August 20 and 22 strikes where a total of around 30,000 lots were bought with only some spread against the sale of 17.5 strike puts. Today’s excursion to $22.50 is a two-month low for Amex and has probably set off some protective demand. – American Express Co.

YHOO – The internet company’s shares have vacillated between positive gains and negative losses throughout the trading day, but are currently flat at $14.71. Investors hoping for a recovery in the market price of the shares through expiration in August looked to the August 15 strike price to purchase approximately 22,000 calls for an average premium of 1.10 per contract. Over the next few months investors long the calls will be looking for Yahoo’s shares to rally higher by 11% to surpass the breakeven point at $16.10. – Yahoo!, Inc.


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